Subpart (a):
MPC.
Subpart (a):
Explanation of Solution
The slope of the linear equation is the MPC; here, it is equal to 0.8. Thus, MPC is 0.8.
Concept Introduction:
Marginal propensity to consume: Marginal propensity to consume refers to the sensitivity of change in the consumption level due to changes occurred in the income level.
Marginal propensity to save (MPS): Marginal propensity to save refers to the sensitivity of change in the saving level due to changes occurred in the income level.
Subpart (b):
MPS.
Subpart (b):
Explanation of Solution
The MPS is evaluated as follows:
Thus, MPS is 0.2.
Concept Introduction:
Marginal propensity to consume: Marginal propensity to consume refers to the sensitivity of change in the consumption level due to changes occurred in the income level.
Marginal propensity to save (MPS): Marginal propensity to save refers to the sensitivity of change in the saving level due to changes occurred in the income level.
Subpart (c):
Consumption.
Subpart (c):
Explanation of Solution
Consumption can be calculated as follows:
Total consumption is $360.
Concept Introduction:
Marginal propensity to consume: Marginal propensity to consume refers to the sensitivity of change in the consumption level due to changes occurred in the income level.
Marginal propensity to save (MPS): Marginal propensity to save refers to the sensitivity of change in the saving level due to changes occurred in the income level.
Subpart (d):
APC.
Subpart (d):
Explanation of Solution
The average propensity to consume (APC) is evaluated as follows:
Average propensity to consume is 0.9.
Concept Introduction:
Marginal propensity to consume: Marginal propensity to consume refers to the sensitivity of change in the consumption level due to changes occurred in the income level.
Marginal propensity to save (MPS): Marginal propensity to save refers to the sensitivity of change in the saving level due to changes occurred in the income level.
Subpart (e):
Level of saving.
Subpart (e):
Explanation of Solution
The level of saving can be evaluated as follows:
Total saving is $40.
Concept Introduction:
Marginal propensity to consume: Marginal propensity to consume refers to the sensitivity of change in the consumption level due to changes occurred in the income level.
Marginal propensity to save (MPS): Marginal propensity to save refers to the sensitivity of change in the saving level due to changes occurred in the income level.
Subpart (f):
APS.
Subpart (f):
Explanation of Solution
The average propensity to saving (APS) is evaluated as follows:
Average propensity to save is 0.1.
Concept Introduction:
Marginal propensity to consume: Marginal propensity to consume refers to the sensitivity of change in the consumption level due to changes occurred in the income level.
Marginal propensity to save (MPS): Marginal propensity to save refers to the sensitivity of change in the saving level due to changes occurred in the income level.
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Chapter 10 Solutions
Macroeconomics: Principles, Problems, & Policies
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